Westpac is predicting rents will jump 11.5 per cent this year, enough to tempt investors and developers back into the market.
The prediction was first reported in the Australian Financial Review.
Westpac Business and St George Senior Economist Pat Bustamante told the AFR that the peak of the current rental crisis will take longer to appear than initially anticipated.
“Given the current supply and demand dynamics, and the lag in supply, the peak would likely take longer than people expect,” Mr Bustamante told The Australian Financial Review.
“The return of migrants and international students is providing an important injection of labour supply, but it’s also putting a further strain on the rental market.
“Unlike the previous cycles, we’re not seeing the supply response because interest rates are increasing and there’s also a lag between approvals and construction, which means we’re unlikely to see a reasonable amount of new supply until the middle of 2024.”
If rents did increase by 11.5 per cent it could be enough to tempt investors back into the market, Mr Bustamante said.
“This could be enough to entice investors and developers back into the market, which would ease the supply crunch,” Mr Bustamante said.
Westpac’s predictions come as recent PropTrack figures show rental listings in Australia’s capital cities has reaching a two-decade low.
2022 already saw record rental growth
A recent Domain Rent Report showed Australia recorded its steepest annual rental increase on record in 2022.
Across the combined capitals house rents soared 14.6 per cent while units climbed 17.6 per cent, with rents at record highs across all cities, apart from Darwin, and in Perth for units.
Domain Chief of Research and Economics Dr Nicola Powell said the rental market had become extraordinarily tight due to increased tourism and overseas migration.
Foreign students were also placing greater pressure on supply, which fuels the landlord’s market and puts increased pressure on tenants across much of the country.
“Nationally, asking rents are at historic highs across all cities (apart from Darwin and units in Perth), rents are rising at the fastest annual pace ever seen across the combined capitals and the number of vacant rental properties is at an all-time low for the month of December,” Dr Powell said.
Separate figures from PropTrack showed the number of rental listings fell dramatically in 2022.
Combined capital city total rental listings were down 26.3 per cent year-on-year, according to the December release of the PropTrack Rental Report.
That’s the lowest level they’ve been since February 2003 and follows a year where increased migration and the end of pandemic restrictions saw a resurgence in city rental markets.
Rents increased 10 per cent in capital cities over the year to December and 7.1 per cent in the regions.
Australia’s two largest cities were bearing the brunt of increased rental demand, PropTrack Director of Economic Research, Cameron Kusher said.
“In Sydney and Melbourne, the two largest rental markets in the country, rental stock is reducing quickly and demand for rental properties is increasing,” he said.
“Most of the overseas migration that will occur over the coming years will be in these two cities, which will increase demand for rental accommodation.”
